Those that scoffed at upstart companies centering their business on the cannabis industry, mocking them at every chance, couldn’t have been more wrong. Several of these once “penny stocks” have evolved into billion-dollar international industry giants, some of which now trade on the New York Stock Exchange, Nasdaq and Toronto Stock Exchange. The good news for investors still looking at the cannabis space is that plenty of upside remains with opportunities not only in North America, but worldwide as the nascent cannabis movement continues to evolve.
By The Numbers: The Trend Shift to Global Acceptance
Canada was a trendsetter with its watershed moment of legalizing adult use of marijuana as of October 17, 2018, making it the first G20 country to do so and second in the world along with Uruguay. In the U.S. 30 states have legalized marijuana for either medical or recreational use, with more likely charting a course to legalization following ballot initiatives upcoming in Michigan, North Dakota, Missouri and Utah on November 6.
Legal marijuana has become a bipartisan topic in America and long passed a tipping point with the general population. The latest Gallup poll shows 66 percent of Americans now in favor of legalizing the once taboo plant. This type of support – not to mention a Quinnipiac survey earlier this year showing 93 percent of respondents believing medical cannabis should be legal in the U.S. – could lead to marijuana finally being removed from its listing as a Schedule I drug alongside heroin and its definition of having no medical uses.
Worldwide, more than 30 countries have legalized cannabis in some form, including Uruguay, Colombia, Australia, Argentina and, recently, South Africa. Europe is particularly progressive, with medical use allowed (even if for only select maladies and in certain forms) in the Netherlands, Poland, Romania, Denmark, Norway, Germany, Italy, Greece, France, Spain, Slovenia and more.
Simple math shows that about one billion people worldwide have access to some form of legal marijuana across Canada (~37 million, the U.S. (~200 million), European Union (~392 million) other countries (~353 million) scattered around the planet. Safe to say, that is a massive market opportunity.
Leading Players Establishing a Global Footprint
Companies of all sizes are seeing the opportunity at hand and not making any haste with efforts to capitalize. A leading player planting its flag domestically and abroad is ICC International Cannabis Corp. (CSE: WRLD)(OTC: KNHBF), a Vancouver-based company that is vertically integrated on an international scale. Through its subsidiaries, the company has agreements in place for European-based pharmaceutical distribution, wholesale importation and research and development, as well as licenses to cultivate, produce, distribute, store and export cannabis, cannabis derivatives and industrial hemp in Colombia, Denmark, Poland, Greece, and the Kingdom of Lesotho. ICC International’s agreements give it a robust distribution network of 35,000 pharmacies in 16 countries.
WRLD, formerly known as Kaneh Bosm Biotechnology, is a company moving at light speed. Recent development include the acquisition of Danavian Cannabis Ltd., the holder of one of only 12 cannabis cultivation licenses in Denmark. In collaboration with the experts at Israel’s Sababa Sciences, the company has designed a 473,000 square foot, fully automated greenhouse facility that will meet IMC-GAP, ISO:9001 and European GMP standards on WRLD’s 55-acre property in Møeldrup, Denmark.
ICC International also acquired EU Cannabis Corp., bringing it under its umbrella while completing and submitted an application for a medical cannabis license in Greece. Earlier this month, the company made history, being awarded the first ever cannabis cultivation license in the Hellenic Republic of Greece. The company controls a 16-acre land parcel situated in northern Greece, which upon receipt of the medicinal cannabis license will be dedicated to medical grade cannabis cultivation, extraction and distribution, as well as research and development.
Elsewhere, ICC International broke ground on its Colombian Cannabis Centre of Excellence that will serve as headquarters for its flagship 13-acre property located in the heart of the Bogota Savannah in Funza, Colombia. Here the company holds licenses to cultivate, produce, hold, sell and export cannabis and its by-products. Once optimized, management forecasts 500,000 kilograms of dried cannabis flower will be produced at the Colombian facility.
Further cementing its international presence, last week ICC International acquired Polannabis Holdings. Through its subsidiary, Polannabis controls a Polish hemp processing and extraction license that allows for the extraction and manufacturing of cannabinoid (“CBD”) derived products from hemp. CBD is a non-psychotropic constituent of cannabis and its cousin hemp, lauded for its ability to treat an array of diseases and conditions. It is the active ingredient in the new drug Epidiolex of GW Pharma (NASDAQ: GWPH), which was recently approved by the FDA for treating two rare forms of epilepsy, making it the first ever cannabis-related drug to garner the FDA’s blessing.
Polannabis has access to over 850 acres of premium hemp crops estimated to produce up to 6,800 tons of material for CBD extraction. The investment is accretive to ICC International, as Polannabis has an extraction and manufacturing facility, complete with proprietary hydrocarbon extraction technologies that are presently producing CBD isolates, distillates, bulk oils, paste and tinctures.
Speaking of accretive, Polannabis has secured a monthly off-take agreement for 100 kilos of 99.9% CBD isolate that will be initiated immediately following a planned capacity and processing expansion that will push CBD extraction capacity to over 2.4 million grams annually.
Based upon WRLD share price when the deal was announced, the company paid about C$20.0 million in cash and stock with another C$2.5 million earmarked for achieving an earnings milestone. The buyout price could turn out to be a veritable steal if Polannabis hits the milestone of C$25 million in earnings before interest, taxes, depreciation and amortization by 2021.
The formidable portfolio of ICC International recently caught the attention of Auxly Cannabis Group (TSX-V: XLY)(OTCQX: CBWTF), which invested $5.0 million in ICC, a move that provides Auxly access to WRLD’s established portfolio of international cannabis licenses, assets and distribution networks.
Auxly, formerly known as Cannabis Wheaton, is a company employing a unique streaming model to gain exposure to the global cannabis markets. Made popular by the resources industry, a streaming model is where a company provides access to capital today in exchange for a piece of future production. In many cases, Auxly is entitled to a portion of crop yield of cannabis cultivators. The relationship with ICC International further diversifies Auxly insomuch that the pact gives Auxly right of first refusal to supply product to ICC if it needs it and first rights to acquire ICC assets or license its technology in addition to first rights to any product ICC intends to sell.
In aggregate, Auxly is targeting 2019 cannabis production capacity at 230,000 kilograms.
Auxly further runs the cannabis gamut through midstream assets, namely the $38 million acquisition of Dosecann, a Canadian licensed cannabis dealer specializing in cannabis edibles and concentrates created at its 42,000 square foot, purpose-built GMP-compliant facility.
In August, Auxly agreed to pay $12.3 million in cash and stock for KGK Science. London, Ontario-based KGK has expertise in serving leading nutraceutical, natural health product and consumer packaged goods companies such as Kraft Foods, Sanofi, Nature’s Bounty, and NuSkin. Management sees KGK’s expertise as synergistic with Dosecann’s in the creation of value added cannabis products backed by research and science.
Moreover, Auxly has further differentiated its portfolio through investments in other cannabis channels, including its direct-to-consumer Kolab Project, the holder of a sales license from Health Canada, which authorizes Kolab to sell dried cannabis to registered Canadian medical patients across the country through its online portal. Auxly further plans to open retail locations, giving it working in cannabis from seed to sale.
LGC Capital (TSX-V: LG)(OTC: LGGCF) is another making a play overseas for cannabis market share. The company this week trumpeted an important milestone in submitting definitive documentation to the TSX Venture Exchange related to its investment in Viridi Unit SA, a vertically integrated Swiss cannabis producer. Closing of the transaction now only needs the green light from the exchange.
In August, LGC agreed to pay C$3.94 million in stock for 30 percent of Viridi.
The investment in Viridi gives LGC Capital not only the equity stake, but further entitles LGC to a 5 percent royalty on Viridi’s net sales for the next decade, an important point considering Viridi is narrowing in on what could be substantial future sales. The company is currently in the midst of harvesting and processing 20,000 plants from their 108,000 square foot Geneva cannabis cultivation facility. Expectations are for the plants to yield 3,000 kilograms of dried cannabis flower, which will be sold into the Swiss market. Viridi's high-CBD dry cannabis products are sold under the “ØNΞ Premium Cannabis” brand in over 100 retail locations across Switzerland.
LGC Capital also has it hands in the cannabis-infused beverage market that has been getting so much attention lately following Constellation Brands (NYSE: STZ) investing billions in cannabis industry behemoth Canopy Growth (TSX: WEED)(NYSE: CGC). The highly profitable move has Anheuser-Busch InBev (NYSE: BUD) reportedly looking into an investment in cannabis and rumors swirling that Coca-Cola (NYSE: KO) is also pondering the space.
This month, CLV Frontier Brands, a joint venture between LGC, Creso Pharma and UK-based Baltic Beer Co., launched Old Boy Mary Jane beer in London, with plans for introducing the award-winning, CBD-inspired brand to Berlin, Germany next.
Investors following the cannabis space have seen majors like Canopy Growth, The Green Organic Dutchman (TSX: TGOD)(OTC: TGODF), Aurora Cannabis (TSX: ACB)(NYSE: ACB) and CannTrust Holdings (TSX: TRST) make big investments into international cannabis markets. For example, Canopy Growth earlier this year paid about $29.0 million to acquire Daddy Cann Lesotho PTY Ltd., (better known as “Highlands”) to get exposure to the “Dagga Belt,” which includes Lesotho, in South Africa. Dagga is a slang word in the region for cannabis. Since founding CGC, CEO Bruce Linton has spearheaded six acquisitions valued at more than $500 million to expand his company’s global footprint.
Smaller companies executing on aggressive strategies to build their brand in markets across the globe are – for lack of a better word – smart. The industry is going to go through growing pains, consolidation and all sorts of things that can’t be foreseen just yet. That will leave some companies laying as rubble that paves the road to what eventually could be an industry that disrupts some $500 billion worth of global markets (e.g. pharma, beverages, etc.). Others, likely those savvy and experienced enough to mitigate risk through operations in multiple lucrative markets, will thrive and enjoy the opportunity to grow into a giant, like Canopy Growth, Aurora and more that were once derided in the past.
Disclaimer: Nothing in this article should be considered as personalized financial advice. We are not licensed under securities laws to address your particular financial situation. No communication by our employees to you should be deemed as personalized financial advice. Please consult a licensed financial advisor before making any investment decision. This is a paid advertisement and is neither an offer nor recommendation to buy or sell any security. We hold no investment licenses and are thus neither licensed nor qualified to provide investment advice. The content in this article is not provided to any individual with a view toward their individual circumstances. Baystreet.ca has been paid a fee of one thousand eight hundred dollars by a third party for ICC International Cannabis Corp. advertising. This compensation constitutes a conflict of interest as to our ability to remain objective in our communication regarding the profiled company. Because of this conflict, individuals are strongly encouraged to not use this article as the basis for any investment decision. While all information is believed to be reliable, it is not guaranteed by us to be accurate. Individuals should assume that all information contained in this article is not trustworthy unless verified by their own independent research. Also, because events and circumstances frequently do not occur as expected, there will likely be differences between any predictions and actual results. Always consult a licensed investment professional before making any investment decision. Be extremely careful, investing in securities carries a high degree of risk; you may likely lose some or all of the investment.
